Alaska editorial: Find some clarity in oil numbers

Posted: January 12, 2012 - 1:07am

This editorial first appeared in the Anchorage Daily News:

Judge Sharon Gleason’s decision that the trans-Alaska oil pipeline has up to 50 years life points up something that Alaskans need in the oil tax debate the Legislature will resume in a few weeks. Let’s have some clarity about numbers.

Much of the argument in the property-tax case Gleason has been hearing has been about the level of oil throughput that can sustain the pipeline. Judging by evidence at trial, the answer depends on who’s asking and for what purpose.

One witness for Alyeska Pipeline Service Co. testified that the pipeline can’t operate at less than 300,000 barrels a day. Lower volumes mean cooler oil and greater incidents of water, wax and frost woes.

However, studies done for BP indicate that the pipeline can operate safely at volumes of 100,000 barrels or less if the pipeline is fortified with heaters and other technology, all of which is feasible - at a price.

The lower numbers boost the estimates of recoverable oil in leases owned by BP and other North Slope producers, enhancing the companies’ value. The higher numbers, and presumably shorter pipeline life, serve BP and other producers by both lowering the value of the pipeline, and thus property taxes paid to local governments, and lending urgency to the producers’ call for tax cuts aimed at increasing production.

So the Securities and Exchange Commission gets one working estimate. The state of Alaska gets another.

Let’s have one set of numbers please — or several sets, with all their attendant costs and consequences to the state, local governments and the producers.

And we shouldn’t have to rely on tax litigation to reveal them.

This business is thorny enough without a thicket of competing figures. Advocates of slashing tax rates use the imminent demise of the pipeline at lower volumes as one of their arguments. But how close are we, truly, to the end of the pipeline as a functioning system?

Most Alaskans want to reverse the production decline. Disagreement arises in how to achieve the goal — and who pays what price to get there.

The fundamental question remains: If Alaska changes its tax system, what does it gain? We need to make sure we have specific, straight answers — with honest numbers and how they apply.